good morning. off to the races. alcoa kicks off serns earnings on a bullish note. trouble on the runway. no, not "america's top model." boeing, a series of problems with dreamliners. and u.s. equity futures pointing to a positive start to wall street. it's january 9, 2013. "squawk box" begins right now. good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew sorkin. i can't talk today. shares of alcoa getting a boost after the company's quarterly report. fourth quarter earnings matching expectations. revenue did come in better than the street was expecting. the country's largest aluminum producer says that it is cautiously optimistic that demand for the metal will continue to grow in 2013. among the catalysts, they're

looking at strong sales to aerospace and construction customers. alcoa executives are keeping a cautious tone as worries linger about the budget battles in washington. >> you look at the businesses, you actually see that the endowment dow stream businesses are hitting new records profitabilities. another quarter of that and record year. that's great. when you look t upstream where it's basically about the commodities coming down, the cost curve, we are coming down on the cost curve 4% point. on the smelting business, our aluminum business. so that's pretty much what the quarter looks like. >> ceo klaus kleinfeld said sentiment rather than market fundamentals will be driving a rebound in lump naluminum price >> it's good that we start with alcoa. the earnings season is a shocker, a shocker -- >> shock to the system. >> yeah. a shock to the system. you ease in, you know, never -- we reported alcoa but you -- what if you had to start with google or -- or apple or you had

to know, you -- with this, you know, $9 billion, smelting a little bit better. you know, people are still using some aluminum around the world. but at least -- okay, now we know. now everybody at home knows. it's earnings season. it's -- but it didn't bombard us with really earth-shattering stuff. we will be bombarded. >> you ready? >> i am. i'm ready. ready to -- i don't know. i'm ready. >> you ready? >> i'm ready. i might -- i don't know. we'll see how i feel. no, i'll be here. >> okay. >> don't worry. let's talk about boeing and the dreamliner. more news on the front page of many papers today. lots of continued problems including this one -- japan's all nippon airways canceled a boeing 787 dreamliner flight scheduled to flight from western japan to tokyo today. the airline citing brake problems. and this add to a series of setbacks for the aircraft this week. yesterday a fuel leak forced another 787 operated by japan

airlines to cancel takeoff at boston's logan airport. and on monday, there was an electrical fire on another 787 after a japan airlines flight to boston from tokyo got -- caught fire. boeing's asian customers are rallying behind the planemaker, arguing the incidents are glitches that can happen to new planes. the customers say they have no plans to scale back or cancel orders for the aircraft, but maybe we can take a look at the stock. you can see it's kind of hit over the past couple of days. this is on the front page of "usa today" today. also i believe the "wall street journal" and some other papers making a lot of what this is about. i don't want. does this really happen to all new planes? >> i would say so, yeah. >> new designed planes or just the manufacturer of -- >> this has both. not only a new plane but a revolutionary new plane. i'll take their word for it at this point that there's glitches. plus, the glitches that we've seen so far, i'm still -- >> you've always been -- >> manageable. >> you have been calm about airplanes. i don't want to -- >> at this point, you look at --

superstitious -- the last ten years you should be calm. >> i'm calm. >> nothing has changed this week. >> if you were going vacation with your family next week and it was a 787, you would get on, take a nap and be fine? >> yes. i'd get on just about any -- hasn't the last ten years sort of allayed your fears? >> statistically, i -- i wonder. i imagine there are people who get nervous. >> you know -- >> there are lights above us that could fall on us at any time. >> you know the satellites going around the world -- >> there are meteorites? >> the satellites aren't held up by strings. there's nothing holding them up. they're just moving around, moving around, and -- by themselves. so -- i mean, it would be bad luck. figure out how many takeoffs and landings per day, around the world, figure it out. figure out how many people have died other ways -- >> i completely agree. i --

>> doesn't change the equation, does it make you more nervous to get on a 787? >> statistically on a 787 they've not had -- >> are you worried about the new delta jets, the 787 -- you're worrie worried, right? >> you know me. i'm anxious. >> don't be an anxious flyer. an anxious prompter reader. >> that i'm anxious about, too. >> you should be. is it al nippon or al nippon? >> i actually heard it on the radio this morning -- >> al nippon? >> saying al nippon. that's why i went with al nippon. >> there was -- now a forethought on that. i didn't -- i don't know. not i don't myself. >> i thought it was al nippon. when i first read it, i thought it had to be al nippon. then -- >> this morning, i heard it -- >> it was said the other way. i thought maybe they know better than i did. >> you do it that way, i'll do the other, and we're covered. if i read it next hour. let me talk about -- >> if a clever, smart viewer knows, shoot us a tweet.

>> okay. >> squawk-apedia. and dish is offering $3.30 a share for clearwire or $2.3 billion, the move setting the stage for a takeover battle for the wireless provider that owns crucial mobile spectrum. analysts saying dish had planned to buy into the industry. it's spent $3 billion acquiring much-needed capacity. there's a number of conditions to dish buying clear good wi-- clearwire. sprint is keen to buy the rest of the company. they'd have to get through sprint there. and aig's board will meet to discuss former ceo hank greenburg's request that the company join a lawsuit challenging some of the terms of the insurer's government bailout. in a statement, aig says it has an obligation to consider a demand by greenburg. the company expects to make a decision in the next several weeks, and i saw -- the new york

politician just talking about it yesterday, how dare you if you think about this. just what you would think after we talked about it yesterday morning. >> if you get a chance, david boyz, hank greenberg's lawyer, has a piece in "usa today" who talks about why the government -- not the government but that aig should do this. >> right. interesting that he went with "usa today." the broadest -- >> the broadest reach, right? >> he wore sneakers with suit. he says, took the company, 80% of the equity, without any compensation. and he says that -- he says the government recently admitted that they took aig's equity not as compensation or collateral for the loan but to "punish aig shareholders" for letting the company ibm a victim of the 2008 liquidity crisis. >> he's still not going win friends with that. >> it's going to be a tough argument to make. he's making it. if you have a chance it's worth the read. >> and phil lebeau writing in

it's al nippon as in let's all go to dinner. al nippon -- >> that's a-l-l. you heard it on the radio from a dope that didn't know either. two guys -- >> that's the problem. >> two drowning guys holding on to each other. >> if you get the information from newspapers, you don't know how things are pronounced. if you listen to the radio, they get it wrong. >> heard it in the car on the way here. >> you tell your -- you request a certain station from your driver? >> no, whatever -- >> whatever he's listening to. >> eli. a euphemism for joint chiefs. whatever he listens to i listen to. >> his name eli? the same guy every day? >> pretty much. >> no kidding. he's not going to be there tomorrow. >> what a life. what a life. if someone tries to approach the car, is eli -- >> he's big. eli's big, yeah. >> so you do have -- you have muscle and you have a driver. >> absolutely. >> how -- how could you --

>> cool, isn't it? i outrun anyone that's after me at this point. >> i know, the own radio station is a big reason for driving myself. i don't like talking in the morning, and i like to pick my own radio station. >> i switch, probably switch 150 times this morning probably. >> that would get really annoying to be your driver. switch it. >> myself i switch it. >> i know. but that would be -- >> while i'm looking down like this, going 100. in other news, goldman sachs and morgan stanley are expected to agree to a $1.5 billion foreclosure settlement with u.s. regulators. an announcement could come this week. the deal would come on the heels of a separate $8.5 billion settlement that was announced monday with ten bigger mortgage servicers. the cbo says $114 billion could be raised if u.s. corporations' ability to defer taxation of their foreign profits was limited. this change is favored by the white house. the new cbo report could fuel

the debate about how to tax u.s. multinationals. currently corporations have to pay the top 35% corporate tax on foreign profits but not until the profits are brought back into the country from offshore. there's been a huge debate. there have been sometimes holidays for these things. but there's a huge debate about what needs to happen and how we need to deal with corporate taxation overall. this is going to be a big sticking point as we get back to budget talks. also, the irs is delaying the start of the tax filing season to january 30. that is eight days later than originally planned. that's when the agency will actually begin accepting 2012 filings. the irs is blaming the fiscal cliff legislation. the change means that early filing taxpayers will have to wait until at least february for a refund. >> okay. this is very important news on wall street this morning. the fed -- a lot of people haven't paid enough attention. the fed is considering changes to what's called the lincoln amendment in the dodd frank bill. the f.t. says the fed is weighing a plan to treat the u.s. arms of foreign banks as

separate entities from their foreign parents. this means it would exempt foreign parents from having to actually comply with dodd-frank. only the u.s. arm, therefore, would have to meet the requirements. so if you're a deutsche bank, just your u.s. arm needs to meet dodd-frank, not the entire institution. >> can't you shuffle things? >> that's the big -- that's what opponents of doing this would say. >> makes it seem fruitless that at a corporation you could do whatever you want with -- >> exactly. a number of foreign banks and regulators have campaigned to the fed to say, look, we have our own rules in our own countries. if you apply this to everybody, to us in our own homeland, it makes things that much more complicated. that's what's going on -- >> i guess the answer, if you run into trouble, that u.s. arm if it is fully funded, they could go after the funds. those would not be allowed to move back offshore. >> are you -- if it's done with the right firewalls, it could work. the question is about implementation. >> right. >> we will see. a couple of stocks to watch this morning -- shares of

seagate getting a boost. the hard drive maker saying it expects to report higher second quarter revenue than it had previously forecast. but a very different foyer for apollo group. the company which own the biggest for-profit college in the u.s. is cutting its profit forecast. apollo reportedly is now lowering student signups for the third straight quarter. and that is obviously hitting the premarket trading, down close to 4.5%. let's check the markets this morning. >> that's weird. isn't it? >> what are you looking at? >> we should hire that guy. shouldn't we? >> alan dodds frank? yeah. >> alan dodds frank -- >> you got an e-mail -- no, he's a cnn guy. i thought you were talking about him. i realized we hadn't talked about dodd-frank in a while. his name is alan dodds frank. so how that possible? he's a business correspondent. >> yeah. >> his name is dodd frank. that's like -- >> yeah -- >> like arm & hammer, isn't it?

the guy bought arm & hammer because his name -- then we used to have a guy on all the time, named after the craft store. remember that guy? >> michael's? >> no, the other one. >> a.c. moore? >> yeah. a.c. moore on all the time. >> i don't remember. >> he did not buy -- he is at argus research, a.c. moore. we got to hire this guy. he could be an expert on -- >> all the time. >> we'll have alan dodd frank on -- >> dodd-frank, if it were repealed, would he have less value? >> he was repealed, i think. where is he now? i'm sorry. did that -- >> let's go -- >> those were my kleenex. stay away from them. let's go across the bond. time for the "global markets report." kelly evans is standing by. is there a famous company or legal provision named kelly evans? >> there's a kelly girl. they're -- they were temporary secretaries, weren't they? >> exactly. there was -- i saw a mug in the back here, guys, in the coffee room that says "kelly: talent at work." i think it refers to a temporary

employment agency. it's become my favorite mug. in any case, it works a little bit. there's also evans cycles over here. evans cycling or something. remember,veyanc evans, a common name. i see it more here than back in the u.s. speaking of what's happening in europe, let's look at stocks. for most part, we're up .2%. not any huge moves. interestingly spurred by the alcoa earnings report which even though we've had guests telling us not to read too much into this, you're seeing stocks move to the upside. the ibex 35 and the xetera dax, just a little firmer. the ftse 100 up .3%. the dakotas i want to focus on -- the dax i want to focus on. this has been down two out of the last three trading sessions. if it's in the red again, it could spark a turnaround from the sentiment shift that pushed it up to over 30% last year. it was one of the best performing asset classes in the

world. in a couple of minutes, we got reports out suggesting industrial production in november was among the other economic performances that were really weak for the german economy. so industry production up only .2%. it was expected to rise 1%. it looks like the fourth quarter is going to be an extraordinarily weak one for germany. we've seen sentiment survey since improve a little. there's a sense or hope that maybe conditions bottomed in q4. a look t bond space. germany did see plenty of demand for a five-year bond auction that went off this morning. the ten-year german bund below 1.5% this morning. prices rising there. we're seeing a rotation into safer asset like bunds and yields. and out of spain which is now up to about 5.1%. interestingly, treasury not catching a bid here. 1.87% is the level to watch as people navigate the u.s. growth outlook. quick check of currencies, the euro/dollar the focus of a debate this morning on "worldwide exchange." a lot of people saying not so fast if you think that the

rising dollar in tandem with rising risk is going to be a theme of the year. today we're seeing the euro/dollar give up .1% to 1. 1.3069. and the dollar/yen after reports out of japan saying there will be coordination between the bank of japan and fiscal authorities to try and get to the 2% inflation target. nothing too concrete. again, the proof will be in the poudre figure i can use a -- in the pudding if i can use a popular phrase this side of the bond. back to you. >> kelly services. i like that -- talent. talent, kelly. >> talent at work. >> talent at work. thanks. coming up, the nation's biggest banks preparing to post quarterly results in the coming days. the inside line next. first as we head to break, a look at yesterday's winners and losers. at 1:45, the a that's hard. >> you stink. the wing and a fractured beak.o

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welcome back. u.s. equity futures figindicatk middleton ed up 17 point. a couple of not great days so far this week on monday and tuesday after a big week last week. people wondering where -- where for art thou dow rally. we'll see. earnings have a lot to do with it. making headlines, a survey of top automotive executives finds that volkswagen and bmw are the favorites to add market

share over the next five years. a survey that was conducted by advisory firm kpmg finds toyota also saw a big rebound in its standing after the issues it's had in the past couple of years with the accelerator. in global news, the egyptian central bank which we've been watching closely, reducing the size of its daily foreign currency auctions. we thought that might happen. that happened today. this comes after gutteder threw egypt an economic lifeline by sending $2.5 billion in aid to help it get a currency crisis under control. egypt had warned that foreign reserves had fallen to a critical minimum. and what they said -- >> like gutter. >> gutter -- >> some people say qatar. some say qatar. >> some say qatar. people that are totally -- people that say al nippon say qatar. >> right. >> instead of al nippon. >> true. and -- >> never mind.

>> what happened? don't they -- >> got sick of listening to you. yeah. >> amr business news wasn't exciting. >> questionholders might receive -- equityholders might receive that. and eric fisher with the weather channel joins us. good morning. >> good morning. hello, everybody. a big story for today, the rain in texas into louisiana, arkansas, a lot of it on the radar this morning. we've seen over two inches of rain in dallas, we could see maybe two, three, four inches more before all is said and done. heaviest rainfall between san antonio and houston today. here's a look at totals already. about 24 hours into all of this, we've seen over four inches of rain around baton rouge. over two that n dallas. an inch in houston, two inches in houston. another two to three in dallas, three to five in lake charles, louisiana. two to three in shreveport.

there will be flooding issues here. eventually the rain stretches up. if your concern is the mississippi river, anywhere from st. louis southward, the barge traffic will get improvements as we see the water levels rise. there are the flood watches in effect. eastern texas, almost all of louisiana, pushing into earn sw mississippi. those will be -- southwestern mississippi. those will be spots to watch. houston, corpus christi, storms firing. yesterday we broke a good streak. the longest streak ever recorded between killer tornadoes. it's been 198 days. and hopefully that's going to continue. the other story we'll watch, a january thaw in progress. chicago, 15 degrees above average today. louisville, about 14 degrees above average. we get toward tomorrow, approaching 70 in nashville, 67 in memphis. are you kidding me? by friday, we see the 60s in atlanta, 70s this weekend in d.c., well up into the 16. eventually we're going to cool things off, especially in the west. if you like winter, it's the rockies, the plains. friday into the weekend. the east coast staying warm.

for folks in new york city, wouldn't bet on big snowstorms any time soon. >> haven't had snow yet. >> no. >> we had -- >> two weeks ago we had quite a bit of snow. >> i was down, didn't happen -- >> quite a bit for us. we're focusing on financials this morning. gerard cassidy covers the sector for rbc capital markets. we have earnings coming up later this week. then we move to more serious earnings later next week. let's talk about the banks now, gerard. you are -- you're positive, bullish on the sector broadly -- >> yes. yes, andrew. we are still bullish on them. we were bullish last year. we continue to be bullish due to the continuing improvement in earnings coming from credit improvement and also loan growth. >> now, you like the whole industry? i mean, would you buy the index and call it a day and be happy? >> yes. we still would buy the index because when you look at the valuations of the banks, the valuations are still attractive when you look at them from a

price-to-book basis. they trade slightly above book. we think in the future they'll trade at about 1.5 times book value. this is down from 2.3 times book value from the 1997 to 2006 time period prior to the financial crisis. >> okay, now clearly the bears in the financial world would tell you that there are head interests winds. regulatory headwinds. we still don't have a number of pieces, in fact, a majority of the peas of dodd-frank have yet to be implemented. the competition obviously, commercial investment banking, lower trading volumes. what -- what's your response to some of the concerns that people have? >> no, you're absolutely right. there are still headwinds. and you're right on the regulatory outlook. we have concerns, particularly under the vocal rule for the very largest banks. when you look at the regulatory issues for the regional banks and for the vast majority of the bank, the most onerous ones have already been put into place. when we look t futu-- look at t

future for the banks, the issue is the net interest margin because of the low interest rate environment. if the yield curve starts to stephen as we've seen in the -- to stephen as we've seen in the first weeks of 2013, that will eliminate net interest margin pressure. profitability should improve for the group. >> how much do you care about what's going on in washington over the next two months? >> i think that's important because the austerity measures being talked about in washington will slow general economic growth in the country. and as you know, that's a real driver for bank loan growth. and so if those austerity measures are too much and puts us into possibly a recession or just slower growth, that will affect the outlook for the banks. i think you're going to see that the housing market's going to continue to grow. and that's going to be a real driver to the success of the banks this year. >> okay. now in your note to clients, you say that your four best ideas -- i'll list them. walk us through why you like them. you like discover financial

services, fifth third bancorp, pnc financial, and wells fargo. >> yes, when you hook at starting with the last one, wells fargo, as you know, they're reporting this friday they're the dominant morning mortgage lender with over 30% market share. one of the best banks in the united states. we think numbers will bear out on friday as the demand for loans continues to rise on the refinancing side and the new purchase side. credit continues to improve for those guys, as well. pnc financial, which is here in the east coast, they made a recent acquisition of the rpc bank down in the southern part of the country. and they're finally integrating that, and we're expecting to see better growth in 2013 from that acquisition. >> right. >> when you look at fifth third, fifth third is also improving its position in ohio. the growth in the manufacturing sector is benefiting that bank. then discover has been the best financial stock for the last two years as it takes market share in the credit card space. >> gerard, before you go, what

do you stay away from? just for viewers who are paying attention to the space. but maybe making the wrong picks? >> i would say that we have to be very cognizant of what's going to happen with the long end of the curve this year. if rates move up too fast, we have to be cognizant of the banks with the biggest securities portfolios that may have duration risks tied to them. they tend to be the traditional thrift. that's where we would not necessarily stay away from today, but we have to watch it carefully. >> okay. we'll leave it there. appreciate your time this morning. >> thank you. >> thank you. coming up, bids for a number of hostess units expected this week. plus, the story at bankrupt american airlines. why equityholders might do better than expected. ♪ into a scooter that talks to the cloud? ♪ or turn 30-million artifacts... ♪

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okay. here we go. good morning. welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin. amr says business prospects have improved to the point where equityholders might receive value from the chapter 11 reorganization. the parent of american airlines filed for bankruptcy in november of 2011. it's weighing mergers with usairways against exiting chapter 11 as a stand-alone company. normally, you don't see any shareholder recouping anything after a bankruptcy. people say don't buy bankrupt stocks, but in this case, sometimes it works. it has worked a couple of times. alexander's, a couple of instances where bankrupt

company, where you saw the equity go. >> alexander's -- >> he was in college when he did -- -- >> the big question is whether they merge prebankrupt or post bankrupt. and one of the big issues is compensation for the management team. >> right. >> traditionally management teams at airlines when they've come out of bankruptcy take between 5% to 10% of the market value of the company. >> uh-huh. >> they come out of bankruptcy, they get the money and then they merge. or they do it inside the merger, but then you basically have to depend on usairways being generous to the management to actually do the deal now as opposed to wait. that's one of the -- >> in other news about bankrupt companies, there is bidding for up to six bids for various hostess units. that will be out at the end of the week. we have a report that flower foods appears to be in the front seat for initial bidding in the -- could be group of beanbo might be interested in the snack cake unit. kroger and walmart are still in the bidding process, as well.

they're unlikely to participate until the in-court bidding, it says here, starts next -- >> good for you, beanbo. >> i don't know. i'm feeling comfortable saying bimbo. >> it's -- bimbo has a sexist tone even though it initially was meant to small male baby. so it has -- over the years it's take own a negative connotation which i'm not willing to mouth, to use. stocks in mild retreat mode ahead of what many expect to be a weak fourth quarter earnings season. apart from the last few sessions, many investors are leaving bonds for equities in search of higher returns. with us on set, cliff coresa, ceo of kurtwater management. if you believe which i think you do that the economy is doing better than consensus, why wouldn't you think that's a good move out of bonds, into -- into stocks? >> first, glad to be here. and being a bond guy, it's hard for me to admit, but i think

stocks probably benefit from a rotation out of bond this year. i think there's a couple of drivers there. and primarily treasury bonds because i think that's really where the problem is. >> uh-huh. >> not so much in the spread sector, the riskier sectors -- >> those have narrowed, too. >> they've done quite well. you know, in '07 toward the back end of '07, it was almost like a body swap. like the movie "freaky friday." where bonds maybe switched bodies with stocks. bonds have produced equity-like returns. equities, maybe 1%. but i think this is the fulcrum here where asset allocations switch to stocks. >> so what would you do, change your corporate charter? >> there are many things to do still in the bond market. >> buy converts or something -- >> i think equity-like instruments. if you like equities and look at the relative value of equities to bonds, look for equity-like components within the bond market. here's a sector that's done really well but has room to run

high yield. we've got high yield spreads at roughly 500 basis points. >> at the bottom what were they? >> the bottom 2000. so when we were at the demths--f at the depths of -- >> right. what was the spread? >> at the depths of the downturn? 2,000 basis points. >> it's 500 now. that doesn't excite me. >> i'll tell you what, if you think that there's a possibility for a slight rise in rates which we believe there is -- >> right. >> and you look at the correlations between high yield spreads, there's a negative correlation for certain types of moves like 50 basis points. our view is because we were constructive on the economy, that spreads could narrow by 100 basis points. say rates back up 50, you get a net spread compression of 50. that's about 2% price appreciation, and you're starting with a 5% or 6% yield. >> okay. >> 7%. we're not going to get rich on it, but guess what, that's a normal bond return. not abnormal. i think we're going to have maybe a normal year as --

>> why are you constructive on the economy? >> well, i think everyone's talking about the fiscal cliff. rightfully so. >> you mean the debt ceiling? >> yeah, fiscal cliffs i would call it. because i think there will be an interesting debate that we haven't really embedded in the market yet. >> we fixed the fiscal cliff. we're done. we're all good. >> i think we're going to be hearing more about this cliff in the second round. we've already heard it -- >> it abyss? the debt ceiling or abyss? our -- >> both. >> our long-term problems or the debt ceiling? both? >> both. absolutely both. you know, it's maybe early -- >> everybody's got the leave off the zeros, it's compelling. making $22,000. we're spending 38, adding $16,000 to our credit card every year. >> and you owe -- >> we already owe $150 -- $162,000. that does -- that hits home. can you imagine a household trying to operate like that? >> people write back that the analogy is flawed because the household, as a household you're

earning currency -- it shows how much we've overspent. >> we cut -- and we raised $38 or something. >> it's too small, right? at $600 billion over ten years, it's not even a drop in the bucket. and i think we get to the debt ceiling debacle perhaps, you know, we've already heard the bid offer starting. we've heard the democrats say, look, we want more revenues. have we fixed the tax issue? i don't think the markets completely appreciating that part of the debate. $600 billion, i think obama wanted $1.6 trillion. i think boehner got us to 800. that was the bid offer, it never happened. we'll see what happens, i think. the opening bid for the democrats will be -- no, we need more revenue. >> why you -- why are you happy then? >> i'll tell you why. when we sat here in the fall, we said you have to look through the cliff in some ways when you're investing in the market. we expected gains to go to the last day. i expect gain theory to go right to the last day. >> then it will do something.

>> then, guess what, are we going to default on our debt? highly unlikely. >> we'll do something half -- that's good enough because the u.s. economy is resilient. >> i hate to say it -- >> he said half [ bleep ]? >> no, he said we're making progress step by step. while it's hard to see it through all of this, he looks more positive about it because he does think we are making slow progress moving toward it. you're not going to see a grand deal that a lot of people wanted. >> he probably -- >> progress is progress. >> let's step back. a year, two years ago, massive tail risk. all -- europe, the u.s. trapped our way through the tail risk. big risk reduction. we didn't fall off the cliff. it was ugly. it's too small. you know, we'll get through this one, too. it will be -- i'll use your word, half [ bleep ]. i think we're looking at the fundamentals of the economy now. right, the tailwinds are coming down enough that maybe policy is not beta. maybe there's breaking down of that, and that we're beginning to look at the fundamentals. and i just hear more of the conversation around what is going on in the fundamentals.

and i think this estimate of the drag of the fiscal cliff, 1% to 2%, is what the market's focused on. what about housing? what about the wealth effect of housing? what about housing having been a negative 1% drag on gdp, being a positive 1% in our view? that neutralizes the fiscal cliff impact, and then we've got energy. another driver, estimates as high as 1% addition to gdp. >> energy's interesting. >> a revolution. it's tremendous. if we get that policy right, think about the guns and butter implications through time. we're constructive on the economy for sure. >> very good. thank you. >> thanks for having me. >> appreciate it very, very much. not really -- that's your line. i'm going to start using that. >> he's constructive on the economy -- >> i know you don't. but it's inflationary to say it, i think. if i say that, i don't -- yeah, like grading on a curve or something. i appreciate it some. what thanks for coming in. he gets to sell his company.

he gets to be on tv. we both -- a symbiotic thing. you appreciate being here, you appreciate being here? >> i appreciate it. works for us. >> appreciate it very, very much? >> very, very much. >> okay. when we come back, american banks have been dealing with ag irs-techs. now a story says the iranians could have been behind it. details after this. why you should care that hugo chavez won't make it back to venezuela in time for a scheduled swearing-in. i don't spend money on gasoline.

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welcome back to "squawk box" this morning. take a look at how futures are setting up for the trading day ahead. dow looks like it would open 15 points higher. s&p 500 marginal, but maybe open about a point higher. and the nasdaq would be off -- rather, up a point, as well. making some headlines -- a big story in "the new york times" that says that the hacking attacks on u.s. bank were the work of iranians. the moves are said to be most likely retaliation for economic sanctions and online attacks by the u.s. so big questions about what all of that means. in other international news, venezuelan president chavez supposed to be inaugurated tomorrow. he's still sick in cuba. the big question, what's now. our chief international correspondent is here with the details. >> it became official late yesterday. the venezuelan government admitted, hugo chavez is not showing up. doctors say he can't travel. so could he please -- could they please delay the inauguration, go to the supreme court, and

when he gets back, whenever that's going to be, do the inauguration. he's still in havana. he's been there since mid-december. there's been no proof of life for nearly a month. supposedly being treated for cancer. we don't know exactly what's going on because it's never been truly revealed. his former family doctor has been told by family members, he says that chavez is suffering from sarcoma, which is a type of cancer of the soft tissue. so what happens now? we knew he probably wasn't going to be inaugurated. but what will happen? supposedly the constitution says there's supposed to be new elections in 30 days. he doesn't want that to happen. so are you going to see chaos in the streets, are you going to see protests from the position? -- the position in the next couple of weeks? why do we care? biggest reserves of oil in the western hemisphere, second largest in the world. take a shot of the wall. we have this graphic. i think this is really telling. so on the left, way on the left, the blue are the reserves of venezuela, the green is the production. go a few columns over to the united states.

we have very little in the way of reserves compared to venezuela. our production is much, much higher. so the markets are betting, and if you look at the venezuelan stock market or venezuelan bonds of which are widely held in fixed income portfolios, the betting is that post chavez we get closer to the point where the country starts reinvesting in its oil facilities. >> and production -- >> then production would go up. we would have greater supplies. plus, more would come back to the united states because, remember, he gives a lot of it away. hundreds of thousands of barrels per day to other caribbean national -- excuse me, latin american countries. plus he has bilateral agreements with china, et cetera. joe, i saved this video for you. the other reason why americans would care, hollywood will be very upset. there is chavez with oliver stone at the venice film festival. there is danny glover campaigning with him in the last election. sean penn flew down in support in december. and has given speeches to chavez

supporters, trying to get them to buck up and, you know, stand together as they wait to see what happens with hugo chavez. so that's the story. we're waiting to see what unfolds at this point. i think expect a period of volatility and chaos for sure. >> you said no proof of life for 30 days? >> close to, it yeah. the opposition's been demanding, you know, show -- holding up the newspaper. >> i know. like they did with castro a couple of months ago. >> the blogosphere's been rife with -- >> he's already dead. no, hughes in cuba. cuba has -- he's in cuba. cuba has every incentive to keep him alive. they get hundreds of thousands of barrels of oil from him nearly for free. he claims that they pay, but they pay either -- the dominican republic pays with beans, f example. hugo pays with doctors and with free operations. things like that. so -- >> so -- >> we'll see. >> the odds that the supreme court will say okay, we can extend this? >> oh, i have no doubt. it's loaded with chavez supporters. >> yeah. exactly. >> what's the chance that the next guy could be as much of an

ideologue? >> an ideologue? probably 100%. somebody who can hold everything together the way he did, nearly impossible, right? i mean, cuba post castro, venezuela post chavez, the same question, right? there's nobody else out there that's got that same -- chavez has piles and piles of charisma. i've met him. he's incredibly charming. i hated hip as i met him, but i understood why he would be so appealing to people. keep in mind what he's done -- remember, first half of last year, the oil company had $60 billion in revenue. chavez took $18 billion and spent it on free housing, free medical care, free food, et cetera, et cetera. >> you saw how much production they have. they have $200 billion to spend if they -- >> yes, exactly. but he wanted to be re-elected, right? >> basically he's splitting up a much smaller pie more evenly. love how that work. >> exactly. in the meantime, now the official statistics say that their deficit is only 4% of gdp,

something like that. people with knowledge of the numbers claim 20%. 20% deficit. we complain about the europeans hitting 5%, 6%. we have a high deficit relative to the world. 20% in a country that's pumping nearly three million barrels of oil per day? >> how quickly could they ramp up production if they actually reinvested in the infrastructure? >> it would take time. here's the thing to remember about oil production. it is the opposite of weight. it is really easy to lose, it is very hard to gain. production is down 25% since he took office. it's recovered slightly in the last couple of years. remember, he fired 18,000 workers in the middle a strike in 2002. he lost a lot of his technological know-how. then he nationalized a lot. they had a lot more foreign investment than they used to. then he pushed everybody out, said we're going to take a bigger share of the pie. it would take several years. uh-huh. >> well, we need to see actual

evidence that he's -- i'm sure he's -- >> you know more about all this stuff. i don't think he's coming back, right? it's clearly metastasized, he's been operated on i don't know how many times. >> he denied for a long time. >> that he was sick. >> and that he was going to be different. >> will venezuela be better post chief of staff snez i don't know. but we're a -- chavez? i don't know. but we're closer to finding out, better than anybody thought. he's only in his 50s. if he was castro, it would be another 30 years. >> michelle, thank you. >> you're welcome. >> okay. coming up, we're going to check in on the futures pit and see what stories are likely to drive trading. in the next hour, blackstone's byron wean will unveil ten surprises for 2013me2013. an annual favorite ahead. she knows you like no one else.

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on our debt. >> we will get that debt ceiling maybe even sooner than we thought. >> even if it's delayed by a week, it looks like we are disfunctional, which we are. >> it's really tough stuff to have a partial government shutdown. we should not fiddle around with the full faith and credit of the u.s. government. welcome back, everybody. let's look at the u.s. markets. scott joins us. we have been watching an waiting and trying to figure out what's really going to be the driver of the u.s. market now that we've gotten through the fiscal cliff and tnow the debt ceiling. earnings, what are you expecting? >> i expect small beats because we have driven expectations for earnings so w, i'd be surprised if we don't look great on paper. we have also driven gdp expectations down so low. we have an austerity measure

we're trying to raise taxes and expenditures. it's still about growth and that will get us out of this problem. >> you think more than 2%? that's what most off the economists we talked to think. >> you would think we should be growing at 6%. we're all starting to accept these little numbers like that's good. at the end of the day, if you look at what we've done it to, we should be growing three times faster than we are. >> if you're looking ways to find changes, look to the energy sector, suggesting over the next decade the united states could beat out saudi arabia and russia in terms of production. is that something that could change the whole picture? >> absolutely. those are two things. one, i think in energy. number two, i think we will see health care changes that make us more productive, healthier, live longe

longer. >> when will we start to see some of those things? >> 7-10 years. i don't think we'll see them any time soon. right now, we don't have an answer an we will see these politicians trip an themselves and bump along at 2% until that happens. that's the story going forward. >> thank you very much for joining us today. >> all righty. coming up, the man of the hour, blackstone's, byron wien, those things he thinks might catch us off guard in coming months. aig? we said we were going to turn it around, and we did. woman: we're helping joplin, missouri, come back from a devastating tornado. man: and now we're helping the east coast recover from hurricane sandy. we're a leading global insurance company,

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staying ahead in 2013. >> surprise! >> get ready for byron wien's 2013 surprises in the economy and how to profit by them. >> the growth indicator. emerging opportunities for trade and what it means for america's bottom line. >> the flu season may slow you down but a top fund manager here with a remedy. get the hot health stocks that can boost your portfolio as the second hour of "squawk box" begins right now. welcome to "squawk box" on cnbc. i'm andrew ross with joe kernen and becky quick.

let's get you through headlines. alcoa kicking off earnings season at 6 cents a share, it was above consensus. the company gave a cautious upbeat consensus about aluminum demand for 2013 and a board meet meeting about a lawsuit against the government. that suit seeks $25 billion in damages over the 2008 bailout of the insurer. aig says it expects to make a decision by the end of the month. if you have a chance check out a piece on "usa today" and david ford has written a piece on behalf of harping greenberg trying to get aig to participate in this. interesting read. goldman sachs among banks to make a $1.5 billion settlement. this is separate from the settlement announced earlier

this week involving larger mortgage servers like bank of america and citigroup. a dreamliner was canceled scheduled to fly today. it is due to brake problems. yesterday, a fuel leak forced a 787 operated by japan airlines to cancel from boston's airport. monday, another electrical flyer after a japan airlines flight from boston to tokyo and customers rerallying behind saying glitches are common among such planes and they have no plans to scale back. we're now at a point -- they had ashtrays anymore, if you had one that was jammed you'd hear about it on a 787 at this point. brake -- how often have you been on a plane there's some kind of

mistaken issue. >> and you're waiting and waiting. >> now, if it's a 787 -- >> tweet about it. >> tweet about it and hear about it. we'll see. >> dish network trump iing the f offer for clear wire. they own crucial mobile spectrum. dish planned to buy its way into the wireless services industry having already spent billions of dollars for capacity needed. it is approval by sprint that owns more than 50% of clear wire and keen to buy up the rest of the company. here's dish ceo, joe clayeden talking about the deal. >> a bid has been made for clearwire. we're looking forward to working with the special committee.

all the details are listed in the pr release for clearwire. that's all i can tell you today. it just happened. >> let's welcome our guest host with his list of possible surprises for 2013. byron wien from blackstone. great to have you here. we wait for these surprises every year and we will dish these out through the course of the morning, talk about a few of them. we're joined with some of his predictions for the economy, john, welcome. >> happy new year. >> happy new year to you. m why don't we start with surprises because the economy is better than expected given what you hear in the headlines. >> yes. coming into the fiscal cliff resolution, stage one, the uncertainty was for 2013, if things went badly, all the tax

hikes go through, you have a recession. given the dysfunctionality of washington, you would have thought there was a higher impact on hiring and other things and you would have thought people without have sat back to see how it resolved. we had a surprising employment growth under the circumstances. capital goods took a hit, and if washington could get out of the way, 2013 could be a decent year. >> what are the chances of that happening? >> we have to get through the debt ceiling and sequestration and clearly in the headlines as your guest earlier was saying throughout the first quarter unfortunately. the hope is that perhaps we have crisis fatigue, we have cliff fatigue and people get on and do business anyway. >> would you like it to be -- we

put off sequestration. we don't really do much of anything else on taxes or tax reform, we raise the debt ceiling as much as the president wants and we really don't reform any entitlements. let's do everything and not handle anything with our long term structural problems. would you be willing to have a good 2013 by not addressing any of the long term stuff? is that okay to sort of like an ostrich, sort of not handle anything, just go along as we've been going along? is that good? >> it might be good for 13 and might be how 2013 turns out. here's the problem. we ultimately need sustainable programs and sustainable finances. >> not right away? >> there's confusion with cudding financecud i ing -- cutting spending that washington never does anyway with 10 year programs so the

programs are sustainable. we could have no immediate cuts in the economy this year if you reform the programs growing so rapidly. >> what if we don't even do that? that's what we're talking about. that's what we probably won't be able to do? >> i think probably be okay for 2013 but a day of reckoning at some point. >> should we be happy about that and book in our capitol hill gains all said and done, we have another year all said and done. >> preferably book in capital gains before the taxes go up. >> is that what people want for washington to get out of the way, not fight and get these hard won things we need to -- these painful things we need to do, we know we need to do them or hope washington gets out of the way and business as usual. would hope -- i would like to see the president reembrace

his deficit commission report and reembrace bowles-simpson. >> that's never going to happen. >> the two choices, yes, get out of the way. >> pay later, pay later, take the medicine later? all right. we'll all be dead some day. >> true. maybe you never get the pain. >> for what it's worth, i wasn't happy with the deal. >> i think we need some near term -- >> i'm amazed to hear you say that. you're really becomeling enlightened. >> thank you. you agree with me? >> on this point. >> let me rethink this. let me go back. >> but think about it. say we're at a new year's eve party and you say, byron, before you can have a drink tonight, come up with a worse deal you can come up with, i don't think i could come up with one. >> don't you usually have a

drink before you go to the party? you have one before you go out? >> no. i always wait until i get there. >> because it's someone else's -- >> the original deal -- the original deal was 2$2.5 trillio. the final deal was $6 million. all taxes, no entitlement cuts. >> you could foresee something like that with the debt ceiling. then you could see something like that in june and 2014 doing the same stuff. >> i think the republicans will be much tougher on the debt ceiling. >> does that make you happy? >> it does. i want to see one dollar of entitlement cuts for every dollar the debt ceiling is raised. >> you're not normally this mean, this nasty. >> i'm with you and you inspire me. >> you know what, we are coming together somewhere in the middle. you know what we're doing in a word, two words, we're rising

above, dude. you got your pen? get you a pen. we're rising above. where's yours? we'll get you one. >> byron, i want to go through some of your predictions. >> surprises. >> surprise predictions, surprises that could come up over the course of next year. you spend a lot of time trying to figure out what the market's doing and consensus is and where it could be taken off guards in some places. i want you to react. start with number 10, that eu structural problems we main unresolved. when i first heard that, i don't think they will be unresolved. you're right, the market has bid things it's looking like the world is better. >> last year, all the european markets were up and europe was in a semi-recession and all the european markets were up semi-20% and i have them down this year in reaction. >> what about the euro? >> euro is relative to the dollar.

ecb expanding the money supply and fedex spanding money supply. it's a race to the bottom. i don't know who will win it but i don't think there will be much change to the euro. >> i don't think euro ever resolves this issue, does enough to put them off when under pressure. >> sounds familiar. >> that's the environment we're in. i do think the markets are signaling core europe and stock growing again this year, growing uf to keep the eurozone out of its recession. if that doesn't happen, markets will go down. >> the surprise component of that is the 10% decline in the various european indexes. that's what people aren't prepared for. >> let's talk about another international one, japanese economy you say will remain dull and yen will decline against dollar. >> go to 100.

and japanese economy continue to do what it's doing and nikkei rising. most people have given up on japan and underwaited aeighted think the japanese market could give a good return this year. >> you agree? >> seems like that the republic is making political moves on japan and it friends more and may get back into the foreign exchange game but we think the yen will be the weakest among major currencies. >> consensus with that. inflation doesn't rip out of control in 2013 but gold reaches $2,000 an ounce? >> i think it will expand around the world. people want to own something real. gold has been in a consolidation period two years and i think it will make another move. >> we will continue with these

predictions but byron has surprises what he thinks could happen this year and catch people off guard. thank you for coming in. >> trying to figure out what is the surprise about gold because most people think gold is -- >> no. most people. >> i had someone who sa said -- frank holmes said it's going back to $1900. >> most people think gold has run out of steam. i would say that's the consensus right now. snow right. i don't know that's consensus. next, we're going global and talking trade on the export import bank, a record breaking year for financing u.s. businesses to get their product overseas. can it be topped? we'll find out with a further look into byron wien's crystal ball. more of his 2013 surprises. this man has seen everything over the years on wall street. he has a lot of experience. we need to listen to him.

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welcome back. look at the futures, downs up 16 points and nasdaq and s&p up about a point each. >> will 2013 be another bannery? good morning. you can't do anything with the hand you're dealt, i guess, in terms of currency fluctuations. what can we do? let people know we have the greatest brands in the world? >> we do. i was on the phone this week. we have great products. the exporters i'm talking about are looking at a good 2013 from satellites to airplanes to services exports. >> does it help the euro has

birthdayed? had it gotten too cheap, would that be hurting us too much. >> since i enjoy my job, i stay out of the currency talk. i leave that to tim geithner. >> you could have a great year based on currency fluctuation and horrible year based on things out of your control. >> the kinds of things we're selling, a lot of them are long term capital goods. fluctuations day-to-day are not a big impact. large businesses are more impacted by fluctuations. the larger project whether building power plant or airplanes is less impacted. >> are you frustrated in the slowness of getting trade deals done? >> we had three trade deals done and we're now executing them. we had a record deal in c colombia.

still banks think of colombia 10 years ago, not 21st century. it's been a strong market for energy and small business. >> where are we in small business? what's the left you'd like to see done? >> free-trade agreements? >> yes. >> i leave that to the trade reps. i think trade agreements are hard to do. look how long it took to get the last three done. they're just really hard to do. there's a lot of discussion. what i'm really focused on is emerging markets where we step in at the export import bank and close those deals. seeing a lot of growth in africa, a record year there. aircraft, power, small business. asia is still very strong. i'm planning a trip to saudi arabia and the emirates. those are very strong markets for us. >> do you get excited about our ability to export energy eventually or not?

>> there will be a big debate about that. the fact is we will have inexpensive and cheap energy and energy independence and moving down in costs. >> you look at it that way. >> and may be doing something exporting. the demand for l&g is staggering. >> the disparity, what it costs them in asia and europe, we spend here, talking asia, $16, and the u.s. at 2-4 and europe, i think is $10. >> when you travel around the world, how much of the conversation is what's going on in washington versus business climate. how many people are saying you don't have your house in order and it's all screwed up and the fiscal cliff and everything else? >> that happens on morning talk shows. it does not happen in places i go. when i'm traveling in asia and china, they're focused on

growing their economy and when i'm there, how we can sell goods and services and growing the economy. what they're concerned about. the deal i'm concerned about avoiding the tax hikes is demand. u.s. demand is -- >> fred -- sorry, jim, what is with this hochberg chat grkchar. they just announced they're financing a facility in australia. >> right. >> why are they financing businesses to compete with the u.s. he's with lowe's's. i can see it in the way he wrote this. he's trembling. >> we do one thing well. we finance u.s. exports for great jobs in the united states. the money doesn't leave the united states. if they're australia they have a plant. they can buy the equipment from the united states, japan, germany, or china. they will create jobs in those four or five countries.

it's really clear to me, if they create those jobs i want them creating in the united states and financing is one way we induce them to buy in the united states. >> you finance them in australia so they -- >> vendor financing. >> the facility will be down there but u.s. products. >> u.s. products, u.s. equipment, u.s. engineering. >> i'll see if he gets a follow-up. will you be around? >> let me ask one more question. you said you talked to jim mcnerney as part of what's going on. we've been talking about boeing and some issues that have been there. what did he say that concerns him most and he's looking for? >> there's still headwinds and looking at robust growth around the world. boeing had a record deliveries this year. we're seeing record demand for aircraft globally because, as you have a rising middle class, there will be a billion more people in the middle class by the end of this decade. people in the middle class are

flying, traveling. you need to build airports, oshkosh making fire equipment for airports, all that is creating demand for u.s. companies. i'm bullish on demand and exports. those things are happening. if global growth picks up, it will happen better. i'm seeing optimism. >> did he come back? happy with that answer? >> he probably won't. no, he did. he did. >> that was a pretty good answer. >> and the gas exports will compete with u.s. exports and then he went -- it's weird. >> i know jimmy. weird to talk with him this hour in the morning. >> first of all, you know what, they will build and lng plant whether we like it or not. either with american products or german or american products, you make the choice. >> they will compete with u.s. exports. he's on a rant.

talking about flu season kicking into high gear. 41 states reporting widespread activity but is there a precipitation to help your portfolio? the answer when we come back. time for today's aflac trivia question. how many times has the u.s. raised its debt ceiling since 2001? the answer when cnbc "squawk box" continues. was brought ink with multiple lacerations to the wing and a fractured beak. surgery was successful, but he will be in a cast until it is fully healed, possibly several months. so, if the duck isn't able to work, how will he pay for his living expenses? aflac. like his rent and car payments? aflac. what about gas and groceries? aflac. cell phone? aflac, but i doubt he'll be using his phone for quite a while cause like i said, he has a fractured beak. [ male announcer ] send the aflac duck a get-well card at getwellduck.com. [ male announcer ] how do you turn an entrepreneur's dream... ♪

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now the answer to today's aflac trivia question. how many times has the u.s. raised its debt ceiling since 2001? the answer, 10 times. welcome back to "squawk box." a couple stocks to wash this morning. m after the bell yesterday, seagate technology raising its outlook and predicts its proj t projected gross margin to the lower end with softened demand and weaker economy. and apollo, revenue top deck expectations, $1.06 billion.

shares dropped after an initial spike in extended hours trading of lower student sign-ups for the third straight quarter and lower revenue guidance hitting that stock. >> if you have comments or questions on anything we've been talking about, earthquake mail us on "squawkbox"i"@cnbc.com. we'll be back after a quick break. pfizer, merck, eli lilly among some of yesterday's top performers. should these names be in your portfolio? your precipitatiscription for ps just ahead. about once a month. last time i was at a gas station was about...i would say... two months ago. i very rarely put gas in my chevy volt. i go to the gas station such a small amount that i forget how to put gas in my car.

[ male announcer ] and it's not just these owners giving the volt high praise. volt received the j.d. power and associates appeal award two years in a row. ♪ with the spark cash card from capital one, sven gets great rewards for his small business! how does this thing work? oh, i like it! [ garth ] sven's small business earns 2% cash back on every purchase, every day! woo-hoo!!! so that's ten security gators, right? put them on my spark card! why settle for less? testing hot tar... great businesses deserve great rewards! [ male announcer ] the spark business card from capital one. choose unlimited rewards with 2% cash back or double miles on every purchase, every day! what's in your wallet? here's your invoice. office superstore ink retailer in america.

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welcome back to "squawk b " box," everyone. we're stirring things up a little bit. in our headlines. dish network trying to trump the offer for clearwire. sprint already has a deal to buy the part of clearwire it doesn't already own for $2.97.

a michigan takeover for the city of detroit may be getting closer. a team is set to examine the finances this week and determine whether they should make that move. detroit is struggling with a $207 million deficit. mortgage applications rose coming despite a rise in the average mortgage rate, 3en e3.1 >> aig's board requesting hank green board join a lawsuit for insurers on the bailout. it says it has an obligation to consider a demand by shareholder greenberg and the company expects to make a decision in the next several weeks. saying something to the effect when we thanked the american people we meant it at the same time we have these other considerations we have to take. we'll see what happens. even though the winter flu

season may have you down, our next guest has hot health care stocks. our next guest is a fund manager. good to see you. we've been playing the hmo group. that's not your favorite. that's range finder now? >> ticking up is the implementation of obama-care. the second half of the year as things start to become clearer, things should become better. as we get more clarity, it will be time. >> you have a hold on the hmo grou group. >> what is your strongest buy? >> biotech as a group is the strongest. at least some of the macro stuff. low interest rates for capital consuming sectors like biotech.

>> what makes them attractive to be supported. >> the return. pharmaceuticals will do well except you won't have rocket rides. >> do you have a name? >> think names like gilliad and cell gene, had an amazing run yesterday. >> gilliad and cell gene. interesting names to look forward on the long side and traditional merck and pfizer. >> you like the dividends, too. >> dividends, too, and they've come around with the patent cliff. >> anything obama-care related, you're not as excited as you used to be, like it. >> i think this year -- there are a couple of things this year that are interesting will happen to obama-care. mobile health is a big deal as we start to plug the holes in

the health care infrastructure. i want to highlight things like equity crowdfunding in health care this year. that's a big story people aren't talking about. somebody has to pay for things like community clinics and these mobile health care. obviously, the government is not spending as much as they used to, particularly for development stage, biotech, like the nih. somebody has to pick up the slack, otherwise it won't happen. why not let the community do it rather than government. >> how would you play that? >> i think you will see some companies coming public, you being part of the crowd, maybe you're just a crowd of one, maybe able to participate in the private coming the second half of this year via jobs act and maybe opportunity to become a junior venture capitalist. quite interesting. >> any new exciting drugs on the hoer hoernz we will see this year? >> maybe not new. bg 12 from biogen, for multiple

sclerosis. for the sleep deprived, merck has a drug, super exen. >> say that again? >> super exen. it will help you sleep. the middle of this year. >> what do you mean, it's a sleeping people? >> better than lanest ara? >> and hopefully and better than others where you don't knock over liquor stores. >> sleep deprived doesn't mean you don't have time to sleep, means when you need to sleep you can't sleep. >> i can sleep. >> you don't have anything for us yet. >> as far as i know, that's not coming. i'll put a note in merck's suggestion box. >> stick with our coffee. >> and see if we can't get them.

>> the cephalon drug. >> the power nap, 10 minutes can do a world of -- or 20 minutes. >> 20. not 10. >> thank you. >> thank you. >> i just did that while i was talking to you, got some - some -- kidding, great. thank you. next, we will have more of byron's big surprises for 2013. if you missed it earlier, here's a look at what he already revealed and discussed and more what he thinks will be move going the market after this break and the trading session. green arrows across the board. worth noting tomorrow, "squawk box" office hours are back. if you ever wanted to ask mr. kernen a question, join us after the show, 9:00 a.m. eastern time for your chance. joe is going do dish it up online on facebook. doesn't have an account but figured out how to do this. back after the break. this accident gramming with my state farm pocket agent app. you can also get a quote and pay your premium with this thing.

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♪ [ male announcer ] don't just reject convention. drown it out. introducing the all-new 2013 lexus ls f sport. an entirely new pursuit. "squawk" is back. we're talking to byron wien. we have surprises for 2013. some predictions hopefully for him will come true. i don't know if they're good for

everybody. we were up to number 7 before we left off and number 7 is climate change and what that will do to the markets. >> as joe has badgered me earlier, climate change isn't a surprise. the impact on commodity prices is important. i think agricultural commodities will head higher, what's going on. more demand from emerging markets and more crop failure as a result of climate change. the result is we will see corn, wheat and cattle going up. >> right. bloomberg says vote for obama because of sandy. at this point, it's hard to -- i can't counter every -- it's almost like superstition, almost like throwing salt over your shoulder. let's go to number 6. number 6 on your list is china. you think the new administration is going to root out corruption. >> root out is a little strong. nothat would be a surprise.

>> root out is probably a little strong. corruption is a problem there. i think they're going to deal with corruption because there's more transparency in china than there's ever been before. >> more pressure. >> a fair amount of pressure. >> that changes then what? in terms of the market. >> the chinese economy has done all righer last three years but the market has not. the surprise in that one is the chinese market, the shares appreciate 20%, that's the surprise. >> to politics, washington, number 5, surprise. you say the republicans will reverse their position and make a major effort to become leaders on immigration policy. explain. >> okay. the hispanic population of this country is 16.7%. over the next 30 years or so, it will double. the democrats got 71% of the

hispanic vote in 2012. if the republicans could tilt that in their favor, just even a small amount, if they had done that last time, they would have won the election. >> how do they position that argument, given where they were or still are? >> that's why it's a surprise. they have to recognize this is key to future national elections. so they have to have -- >> the party will turn around and say, no, we were wrong about this all along? what's the pivot point? >> the pivot point is these people are here, we have to do something about it and will take the lead away from the democrats. >> marco rubio type of plan had a plan very similar to what the president eventually put up. >> i right. i would go even further than that. i would have a 10 year plan, where if you've been in the you can pass an english

proficiency test, you can apply for citizenship. >> without having to leave the country. >> right. in other words, the republicans, in effect reverse their position. that's the surprise. they do it because, a, it's probably the right thing to do. you know, this is a reality you have to deal with. secondly, politically, it could be very advantageous. it could shift the political balance. >> i don't want to go out of order here. i'm going to number 4. i think we have it right in the control room. i may be wrong. financial stocks have a rough time reversing the gains of 2012. we just had a bank analyst on before who said he was very bullish. >> that's why it's a surprise. financial stocks were the best performing group a rebound from the rough times they had earlier. what i'm saying it's reversed. too much capacity in financial services. too many banks and brokerage

firms. the people who work there are paid too much. the return on equity is very low. >> you don't think all of that is baked in already? >> i don't. i think it's baked in and we will unbake it. >> who gets hit the hardest if that's the case? >> i don't know who gets hit the hardest. i think it's a stock by stock situation. >> that's what i'm asking you, who gets hit the hardest? >> i don't want to name a specific stock. some banks and brokerages get hit. >> the democrat sponsor of a vigorous program to make the u.s. independent of ill imports by 2020. >> and the price goes down. that's the kicker there. look, the democrats have been more concerned about environmental issues than increasing production. they permit more drilling on federal lands. they take a bigger stance, they

allow more hydraulic fracking in less populated areas. if they get really aggressive in trying to promote more energy production -- >> what has the tipping point for that in terms of the conversation in the country in 20 2013? there will be so many debates about other things. i could see immigration being an issue, tax, the grand bargain, the other issues. why now? >> where are the job creators for 2013? in housing, that's got to momentum of its own. they have to stimulate momentum in energy. that could be a very important job creator. >> boon pickens tried to make the logical argument to bring u.s. energy policy about. he spent several years and i think has gotten incredibly frustrated with washington and thrown up his hands and gone around and around. he points out that every president back to nixon talks about how we are going to get

some sort of energy policy and eventually get to u.s. energy independence and it's never happened. it's been such a difficult goal. >> like gun control. that's never happened either as obvious as it is to probably all of us. the administration is looking for ways to accelerate job growth. this is an important one. >> i think it's an important one, i don't know if you had time to do some of these 2012 predictions. >> sure. >> that least the list i have here is all five. i don't know if we have the other five. in 2012 you did pretty well. >> don't say it with such astonishment. >> extraction of oil and gas from shale and rock a game changer. joe, i'm not sure if you thought that was a surprise. >> which one? >> i give him credit for that. >> earnings of american corporations continue to move higher driving standard & poor above 1400. >> that was a surprise. >> not bad. >> the u.s. economy gets its

second wind, real growth exceeds 3% and unemployment growth drops below 8%. right on one piece and wrong on the other piece. recovering climate and economic rate helps president obama convince voters he didn't do such a bad job after all. this is the biggie. >> i picked romney, he would run against romney and win. >> i didn't get to that piece of it. finally, europe develops a broad plan to deal with its sovereign debt problem and move closer to fiscal cohesion, imf and all these things are going to band together to keep all the countries within the eu and continue the euro. >> remember, everybody thought greece would be thrown out and it wasn't. >> not bad. i feel like we're missi mission -- missing the other five from this list, right or

wrong? >> some were wrong and some sort of right. i got about 6 out of 10 right. i don't do it for score. i really try to do it to stretch my own thinking. >> byron, thank you. you'll be sticking around for this conversation and we'll get number 3, 2 and 1 in the 8:00 hour. in the next hour -- we just said that, didn't we? >> still to come this morning, we'll be asking the question whether you're ready for the earnings parade. we have alcoa swinging to a profit in the fourth quarter, what investors can expect in the next few weeks. up next on "squawk box." don't start your day without knowing the names that will make you money. joe has your list of stocks to watch right after the break. this is $100,000.

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bank of america has been downgraded to neutral from out-perform out-performing cri credit suiss

valuatio valuation. >> i like kenny chesney better after they split up. he's good. snow great. >> bank of america -- >> a picture of rene zellweger in one of the tabloids, beach bodies. no, no -- dunkin brands upgraded to buy from neutral saying it thinks same-store sales trends is better than what the street is expecting. alcoa reported better than expected. revenue above estimates and alcoa predicted aluminum demand up 6% from last year. and clearwire received an offer from dish after already having and agreement with sprin

sprint. >> and flower downgraded to out-perform, talking about more promotional activity in 2013 and less profitable sales mix. seagate raised its revenue to $3.5 billion and adjusted grandmothgross margin impacted by soft demand and economic global weakness. proctor and gamble has named terry lundgren to its board of directors. the current director, jonathan rogers decided not to seek re-election at this year's annual meeting in october. terry, for years, i think, toiled at federated, which was based in cincinnati for a while, i think. knows people well. >> i read a story in "the new yorker" yesterday. i read it online and talked

about how tide has become basically street -- on the street, it's become a form of currency. >> the pods, you mean? >> no. the big red -- >> really? why? >> it's something you can bring in and trade and people really look at it as an aspirational detergent because it costs $20 or more for one of the big containers of it. >> in this country? >> in this country, it's getting stolen off shelves. people will take it and you can get $5 on the street for it or $10 inmate. it's being stolen and shoplifted out because you don't get in as much trouble for shoplifting something like that, a way to make money without facing the risk of as much time. >> i don't know how i feel about that. i think it may be okay. knowing people that deal in drugs and things that hurt people. >> at least they have clean clothes. at least they'll use it to be clean and not smell.

at least there's a positive. cleanliness -- it's my life. >> close to godliness. >> close to godliness. >> another way of gaming the system. >> right. the ends are good, to be clean, right? >> i guess. >> when did you have -- is this suit -- how often do you have your suits cleaned? >> i don't know. pretty often. >> do you remember if you've had it -- >> i've had it cleaned. since this last 11-year-old bull market. >> two or three times. >> all right. >> how about the other one you own? clean that one, too? >> i don't know about the other one. >> that's why joe doesn't wear a jacket. >> that's right. >> orbitz, chief financial market marketer-hour on the job for two months, wasn't the right opportunity for him, he says, mitch does. transocean lawyers will be in court in new orleans today starting the process to get

approval for a settlement on the gulf of mexico oil spill. and apollo, its stock has been in a long decline. is it herb greenberger or herb and really funny is herb reports on herbal life. >> herb reports on herbal life. >> got it that. it's confusing, you got to admit. >> right. >> like allen dodd-frank recording on dodd-frank. and wd-4015 cents above estimates, well above expectations. that's it. all above consensus. when we come back, boeing shares grounded once again. phil lebeau joins us on what it means for the company plus an update on gm. we'll be right back. still to come, surprise surprise. guest host byron wien reveal

more of his specialist for 2013. what you need to watch for and how it could affect your investments. "squawk box" is back in just two minutes. with the spark cash card from capital one, olaf gets great rewards for his small business! pizza! [ garth ] olaf's small business earns 2% cash back on every purchase, every day! helium delivery. put it on my spark card! [ pop! ] [ garth ] why settle for less? great businesses deserve great rewards! awesome!!! [ male announcer ] the spark business card from capital one. choose unlimited rewards with 2% cash back or double miles on every purchase, every day! what's in your wallet? ♪ [ male announcer ] this is karen and jeremiah. they don't know it yet, but they're gonna fall in love,

get married, have a couple of kids, [ children laughing ] move to the country, and live a long, happy life together where they almost never fight about money. [ dog barks ] because right after they get married, they'll find some retirement people who are paid on salary, not commission. they'll get straightforward guidance and be able to focus on other things, like each other, which isn't rocket science. it's just common sense. from td ameritrade. i am probably going to the gas station about once a month. last time i was at a gas station was about...i would say... two months ago. i very rarely put gas in my chevy volt. i go to the gas station such a small amount that i forget how to put gas in my car. [ male announcer ] and it's not just these owners giving the volt high praise. volt received the j.d. power and associates appeal award two years in a row. ♪ with multiple lacerations to the wing and a fractured beak.

surgery was successful, but he will be in a cast until it is fully healed, possibly several months. so, if the duck isn't able to work, how will he pay for his living expenses? aflac. like his rent and car payments? aflac. what about gas and groceries? aflac. cell phone? aflac, but i doubt he'll be using his phone for quite a while cause like i said, he has a fractured beak. [ male announcer ] send the aflac duck a get-well card at getwellduck.com.

alcoa kicking off earnings season. earns came in at 6 cents a share, right in line with expectations. we'll tell you what to expect as major companies get set to report. start our engines. o automakers revealing strategies to increase sales in 2013. global stock picks for your portfolios and investment ideas from a top fund manager. the third hour of "squawk box" starts right now. >> we back to "squawkbox" on cnbc, first in business worldwide. andrew sorkin and becky quinn

and our guest host, byron wien, splendid in his suit, clean -- >> not a good joke. >> safe and sound cinema. what is it, two door cinema club, something like that? safe and sound. yeah yeah yeah. all right. blackstone -- from -- but i didn't order it. first, becky has your headline. >> aig's board will be meeting today to discuss whether to file a lawsuit against the government in the 2008 bailout of the insurer. aig expects to make a decision by the end of the month. this is a story we discovered yesterday with the "new york times" piece discovering suing the government the same time

they started an ad campaign thanking the government for baling them out after they paid off all the debt. boeing cancelling a dreamliner flight and cite iing brake problems that caused a setback. yesterday, a fuel leak forced a 787 to cancel at boston's logan airport and friday a japan a airline's flight from boston to tokyo. the customers are rallying behind the maker saying they have no plans to stop making this aircraft. pushing for a moratorium on missile launches and more open internet access. richardson calls the trip private and humanitarian. schmidt has not taken publicly about his reasons for the trip

to north korea. you will see the equity futures higher and continue to build through the morning. nasdaq is indicated up by about 5 1/2 points and the s&p 500 is up by just over 3. overseas in asia, there was a mixed close. zha shanghai up slightly. and nikkei up by 70 points. in europe at this hour, you will see similar situations to what we've seen here. gains but modest ones. the ftse up by 34 points. in france, the cac is flat lining and in germany dax is up by 7 1/2 point. >> alcoa kicked off a meeting about meeting demand but should they prepare for earnings disappointment, joining us a mana managing director and lee,

strategist. before that, we unveal surprises for 2013 and number two, is earnings related? in this case, not that positive about it, right? >> right. >> disappointing. i think earnings for s&p 500 is going to be down this year. >> done year-over-year? >> down year-over-year. >> and below already tempered expectation expectations. >> right. expectations have been coming down. they were 103, now 101, versus 100 for the last year and i think they'll be below 100. maybe 95. >> below 100. >> what does that do for stocks? >> i have a bearish outlook. i think the market will have a swoon and trade do13% -- >> you think it will end the

year that way? >> no. i think it will be flat. >> do you need to be right? does it help? >> the analysts are looking for 10% annualized earnings growth. >> which would be what on s&p? >> probably 112. >> that would be huge if byron's right and it's below 100. >> that's right. to byron's point, we're talking about an annualized number. i've been looking at them in 10 years. what surprised me in the third quarter, i saw something i have never seen before. going into october we're 9% and coming out lucky at 3.2, 1%. we've never seen that kind of diminishment in expectations in one quarter in literally six weeks. that was a little startling. i think the market as will evol but now 10%.

>> lou, what would that do to equity prices? >> in regards to that, we're at an interesting technical level. if byron is right, we were to fail at that level, byron could be right also where he thinks the market is going. 1468 to 1474 is very peculiar and worth talking about this time of the few days into a new year. >> last year was 1475.1, the upper band, the third highest calendar peek on record. the close at 1426 was also the third highest calendar close for the s&p and 3% off the record high close, 1999, at 1469.25. the second highest calendar year close, 2007, 1468.36, was less than a point difference from the 1999 high. you have the 2008 calendar year high, 1471.77. and the year-to-date high, this

year, 1467.94 falls essentially in that 1460-74 level. for whatever reason, this year end and calendar year high stuff is kind of interesting. all gathered around this general area where we are now. if we were able to get above that area longer than it takes to get a cup of coffee and establish ourselves, we may have a new high. with the disappointment on earnings in q4 and guidance in line with what he thinks, the further you get away from the 1468 to 74 the more ominous it looks. nofinancials you thought could be disappointing. what else would it be groups cause year-over-year comparisons negative. >> price of oil goes down. >> would consumer issues.

consumer seems better, housing better? multi-nationals? >> industrials could suffer. think it's pretty much across the board. >> pretty much across the board. >> i think we were talking before about large cap on the nationals. i think they'll come through. the key thing you have to look at, that analysts, i don't think are sufficiently sensitive to, earnings are decelerating and not reflecting that. >> why? housing seems to be stabilizing, rates are still low. where's the problem? >> the problem is that the economy is growing at a relatively slow rate. >> why? >> it's growing at a relatively slow rate because we're a mature economy and too many people out there -- >> not religions, ngulatioregulh government policy -- >> it is but the world

environment is too intense. >> what do you think, michael? >> there's truth and valid points. one thing is interesting, believing you will have a robust -- earnings will be driven by the consumers supposedly putting in double-digits growth in the next few months. byron hit good points, expecting things to come down. this cocktail being brewed up in washington. if you were a business leader and listened to these guys on calls, would you want to be drinking with what these guys are brewing? i don't know. i think they will be conservative. i don't think you will have a cap x driver behind uncertainty. there's a lot of wild cards. a ssymmetrical performance.ear

it's a mixed bag and no conviction in the marketplace, so much contradictory information, some says things are better and things are worse. >> corporations have had it good in terms of profit margins, interest rates, ability to borrow. >> they're peeking. >> the only way to go is down. >> have you calculated how your taxes will go up? have you calculated it under the new plan? ? i don't know how to do that. >> you're in the top 20% of income earners in the world. the top 20% spend 40% of total spending. it is 41% of gdp. all of us on the top 20% are going to be hit. i don't know, maybe you'll keep spending at your present rate. i think a lot of people will pull back. >> i have a lot of earnings years left, byron. we're not the same person. i have a huge -- then, there's this guy who's barely -- he's

scratching the surface. >> every year you have an earnings year left, you have a tax year left, too. the taxes are going to be higher. >> not as many of those years left as -- >> yeah. that's interesting. mohs peop most people think we've paid our dues since the financial crisis and earnings will stabilize and housing coming back. they're looking at this being a good year, byron, not a year we back track. >> that's why it's a surprise. >> that's why it's a surprise. you kind of agree it could happen. when it's all said and done, 13 will be up what, 5%? >> i think the market has movement. we run it by consensus back at the shop. the reality is -- i'll set a caveat there's very little visibility and could see a 10% increase only because of wall of

worry. >> 10% increase in what? >> in the s&p. >> s&p. not s&p earnings but in the s s&p -- >> actually -- actually, what we're thinking is calendar year earnings is up 10%. >> not down. >> if they start coming down, you might run into trouble. i don't know if there will be an earnings driven movement. this is wall worry. where else are you going to invest your money? you have a huge demographic trying to find something and 2-3% yield in the s&p. better than nothing. >> lou, thanks, michael, thanks and byron, we'll be here another 38 minutes. >> yes, you will. coming up, byron wien's final surprise at the bottom of the hour. last year was a struggle for gm and the company hoping new mod models will be good for 2013 and the auto outlook for the sector this year and why vokes

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welcome back to "squawkbox" on this wednesday morning.

dow jones looks like it opens up 31 points higher anded? up a little over three points and we also have autonews. >> gm hoping for a smoother ride in 2013 than last year. phil lebeau from detroit. what is gm expecting? >> they're expecting a big year. we're here in detroit because we'll have an clexclusive interview with the ceo. they're expecting a pretty bullish year. what's driving that? because they have a wave of redesigned models they're moving out this year launching 13 models in the u.s. and 20 when you look at what they're doing around the world. also, they're respeaking thewich line for chevrolet. nor a long time, it was chevy runs deep and meant to appeal to

the emotional people to people in the united states and didn't really do much. now going with a new pitch line, called find new roads and hoping it will have global appeal. two-thirds of chevy's sales happen outside the united states. they have to look at things on a global perspective. in the u.s., they continue to lose market share. they don't be concerned because they're seeing profits grow, down 1.7%. they still lead the u.s. by more than 2%. you look at shares of general motors, it is the optimism on wall street that has become the story in then last couple of months. stock up more than 20%. look at the last six months, up 45%. we're talking to dan ackerson cl exclusively on stock on the st. and his optimism. for a long time at gm they were worried they would lose market share a little at a time in the united states.

now now, their feeling is if we lose market share, not crazy about that but if it leads to profitability, they'll take that. guys, back to you. >> why don't you stay with us? we are joined now for more on the auto sector, managing editor at reuters. phil laid out the case this was a pretty tough year. >> it sure was. >> you're trying to put it into historical perspective, when was the last time gm saw numbers like this in the u.s.? >> pretty many the depression. it dropped to 7.9% last year, the lowest since the depression, maybe before that. it was 1.6 percentage point drop. that's a huge drop in an industry people fight for .1 of a share. they should be worried.

>> the vauolt wasn't that popul. >> no. it was after big incentives were put on in december not to mention all the tax breaks we're giving to volt. the company needs to figure out how to excite people. the cars are fine. high quality stuff. the volt is innovative. the malibu is a good car. the new pickup trucks introduced will drive profits. that's a huge profit driver for gm. the question is, can they produce anything that can excite or give passion? >> is it the product or marketing? >> a little bit of both. there it there's a big difference between competent good products and products that wow you. hyundai over the last few years has had the talent for that, not general motors. >> also the international competition is very tough. they're facing really tough for

ren car competition. >> hyundai and volkswagen. they have a new plant here. vw's goal is to sell a million cars in the u.s. by 2018. a few months ago my company and reuters thought probably this was a real stretch and now looking real possible. they have a factory in tennessee and the new jetta has been received very well. >> audi is coming on, too. >> audi is terrific. they're a powerhouse. nothey are. >> you read about hyundai. some of those hyundais, sometimes i mistake them for mercedes. >> they do that on purpose. >> it used to be i misstake a hyundai for a 1972 corolla. that is so far from what hyundais are right now. >> toyota -- interesting you mention that, toyota is putting on a push to boost its styling in response to hyundai's

success. >> overall, you're pretty optimistic where this year is headed. last year pretty great and think it will be better this year. >> one, the economy is getting better slowly. the other thing, the average age of vehicles on the road is near a record high, above a decade. people have to replace them. >> cramer loves ford. >> ford is -- >> isn't it the fusion kind of -- an interesting looking car, also a hybrid, too? >> they have about six flavors of the fusion and hybrid is one of them. a plug-in hybrid and regular hybrid. >> not really that ugly. >> for a hybrid. >> for a hybrid. >> talk about faint praise. >> some people try to make them ugly. >> while we have you here, can you tell us a little bit about boeing and where things stand today? >> here's where things stand. i think boeing is hoping if they don't have another day of headlines with a dreamliner that

had a cancelled flight and there was one overnight because of a breaking error message that was a domestic flight in japan for al napon airways. if they can get past that they can calm fears about the dreamliner. and just after that, ceo of cutter airways was critical of dreamliner and just last month, he stood by boeing and said these are teething issues and everybody has heard this term. said do not get overly concerned and have their arms wrapped around figuring what is going on. still haven't figured out what caused the fire, thinking the battery unit. put we'll see what the stock does. >> you try building an airplane from scratch, phil. think about it? hey, joe, i've been out there. the complexity of this plane cannot be overstated.

>> 99 chinese made airliner. you will be running back to boeing pretty fast. >> thank you. we will be watching you later today with that interview. thank you for coming in. great to see you. >> that got him. you try building an airplane from scratch. think about that. i wouldn't know where to start, i really wouldn't. even the fuselage. how do you -- you know. coming up, a "squawk" sports update, rg3, scheduled for surgery today and how long he could be on the sidelines and will the employment recovery be sidelined? how does this thing work? oh, i like it! [ garth ] sven's small business earns 2% cash back on every purchase, every day! woo-hoo!!! so that's ten security gators, right? put them on my spark card! why settle for less? testing hot tar... great businesses deserve great rewards!

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welcome back to "squawk box," everyone. right now time for a sports update. robert griffin iii is set to have surgery today to replace a torn acl in his right knee. the redskins quarterback had been playing with an injured right knee almost a month before twisting it late during the game sunday. at this point, surgeons say they will explore whether the acl in the same knee is damaged. a torn acl requires a rehab period for several months. according to trainers if his acl is torn as well, his rehab could last as long as 12 months.

the unemployment report slowly decreasing since the depths of the recession. how long will it take too bring the jobless rate to 6 1/2%, a report from steve leaiesman whe we return. about once a month. last time i was at a gas station was about...i would say... two months ago. i very rarely put gas in my chevy volt. i go to the gas station such a small amount that i forget how to put gas in my car. [ male announcer ] and it's not just these owners giving the volt high praise. volt received the j.d. power and associates appeal award two years in a row. ♪

welcome back to "squawk box" this morning. in the headlines, amr shareholders might be getting earnings. it might be unusual but its stock has improved since filing for bankruptcy in 2011. the possibility of that was mentioned to the justice department. a number of redesign ed mercedes models should drive sales. the u.s. has become more important now that demands from china has receded. finally, apple's tim cook on his second visit to china in a year and ramped up speculation apple is renewing efforts to strike a partnership with apple mobile, the country's largest carrier and apple declined to

comment whether they would be meeting and news tim cook would be looking at a cheaper iphone, a smaller version, what we talked about previously. >> what's next? >> tv. >> where is it? taking forever. unemployment is slowly ticking down. how long will it take to get down to 6 1/2%? steve liesman joins us with a report and rick santelli in chicago. look at those two guys. look at the love. i love that. steve, start us out. >> i'm sure rick is playing this game. the new game in town is gaming out when the fed gets to 6 1/2%. i have to tell you, there are time times we olympic games in the enthusiasm and the answers are unbelievable. you check your math and the math is right but the answer is still

unbelievable. the first of these charts is not my work, done by morgan stanley. let me show you what david has come up with. let me explain the chart. the number of years to get to 6 1/2% unemployment. if we grow at 150,000 jobs a month and the participation rate changes over time. if we stay at the current participation rate, 6 1/2 years to 6 1/2%. watch on the right hand side as the participation rate rises, in other words, a good job market brings new people in, participation rate rises to 64.4, for this economy is not out-landish, 18 years. let me first show you work i did, another way at this. i took all the fed's projections of growth and compared it to projections of unemployment. okay. at deficit growth rates, how much does unemployment decline and how long to 6 1/2. what did very simply, from 2.75

to 3.25, it will take two years. at the current growth rate, 2.25%, around 5.four years. let me show you where the fed is at. they don't see getting below average at 6.5% until 2018. they have been too pessimistic for the decline in employment rate, not where you would think but they've been too pessimistic because they haven't countered in the decline of inflation rate, where you got better than expected numbers. i don't know what you're doing in the bond pit. this is the math at 6 1/2 years if it doesn't increase. if it does increase, the fed will be on hold and you and i will be old men and probably grandfathers by then. >> i find it fascinating.

i think that's good work. i have to tell you, i spend zero time thinking about the fed and 6 1/2%. most of the conversation on this floor runs something like this. what if 7 1/2% or 7% or 8% becomes the new normal because we've all been googled with productivity. let's go back to the '50s and look at the ranks of the employed in large industrial companies, like the old line ge or old line gm or westingwestin. you will find it took a certain percentage of people to produce gdp. it takes much less. these structural issues aren't being addressed by the fed. i guess what disappoints me. i used to be really proud being a fed watcher, i just think, the fed as noble as their purpose may be and think ben bernanke is

a great american, the correlations and human element isn't in their models anywhere. in temps rms of targets, i reme before the crisis we were ready to put all kinds of targets on and if we did, they would change them because it didn't meet their purpose. >> not a lot of intra-agency communication because apparently the bls didn't tell the fed they were going to lower the rate. >> increase the number of part-time for economic reasons. >> why couldn't they have sent a memo they were doing it to the fed to let them know that. >> right now, they're so busy on the intercommunication on the financial side- >> they are manipulating -- >> can i ask byron. what do you think of this work. we know david, a great economist. i'm pretty sure my math is right, give or take a few, still a lot of years. how prachbt important is it to

know for the street when that 6 1/2 rate is hit and when to come off that zero target. >> i don't have any confidence in that work. this are two elements that aren't in. >> thanks a lot. >> a, no provision for possible recession. >> i was thinking of that, too. >> you have to have all thin things -- right. >> secondly, what do you think the fiscal cliff deal, what impact do you think that will have on the economy? do you think it will have no impact? let me give you these numbers. the nominal growth rate projected for 2013 is 4%. the deal that was done is going to take 1 1/2% off that. that takes you to a half of 1%. >> that's nominal, before you adjust for inflation. >> then you're at 2 1/2. take 2 off for inflation, you're at one-half. ed a 1% for housing and more for

energy and a few more things, get back to 2. at 2% growth, those numbers aren't going to work. >> at 2% growth you're at 5.four years to get to 6 1/2% of unemployment at the current participation -- one of the things going on, i have to say, on the street, you have to do two things. you have to figure out t the -- how long to 6 1/2%, because you have to match it to your portfolio, want to know how long am i safe at zero and why people are gaming this out right now. we more guidance how the economy unfolds and comes from the fiscal cliff year. >> right. it could get worse. >> you're right. i can't model in a recession. i have to think at 150. i have numbers at 200. if it does 200, we get there faster. >> byron and i, and rick, we have agreed on a lot of stuff today. one thing off-camera i talked to byron about, some day, it may

become clear some of the economic malaise we're experiencing is self-inflicted, not just reinhardt rograff, not just new normal, maybe dodd-frank, obama-care, maybe uncertainty, maybe regulation. maybe we find out over the next four years, some of the things we heard so much, maybe we are stuck below plan because we're in our own way. >> it would be nice -- >> byron, you kind of conceded that, right? >> yeah. conceded, yes, i guess i did. the point is, what is the wake-up call, joe, that is my question. >> we need a wake-up call. in this environment where there are people that want these entitlements and other people paying for the entitlements. if you have 70% receiving, 30% paying, how do you ever elect another republican and it's when you see maybe some of these policies weren't good for everybody, the people you're most trying to help are the ones

that get hurt. >> what if you return to a much more middle of the road republican party like we had sometime in the '70s with the great senators like jacob jav vitts and governors like nelson rockefeller? >> you mean socially? >> yeah. >> socially, i agree on that. >> could you not forge a consensus that way? not folliscally. we're finding the fiscal and social side -- >> media makes it close. the media makes it close. if you're a fiscal conservative in the house. the whole election made it that way. the media bought into it hook, line and sinker. >> rick, did you see what the house came up with when it decided it would pass a bill with spending cuts, all child welfare stuff, all that stuff, they hacked that out. >> exactly. we need tougher guys, tougher, toughe tougher. >> you just made my case, rick.

thanks very much. >> as long as we don't grow at 4%, and as long as unemployment stays high, the same people you're expressing the cure for are the ones hurt the most. we're going to be fine. people in our position are going to be fine. >> you're more than all of us. >> i'm saying, seriously, the people on the left -- >> i agree. >> that it supposedly cares about are the ones that get hurt. no one wants to see food stamps go from 20 to 30 to 40 to 60 million. >> there's a lot of consensus in san diego among economists liberal center right we should be win knowing down unemployment rates. >> how long did it take to catch madoff, joe? >> 20 years. >> okay. the government does it better and they have printing presses. we are rationalizing ourselves into oblivion. going down the ponzi scheme of what any government is doing is

like aging, everyday you look in the mirror, you don't notice anything. what do you think the government will look like in 20, 25 years at this rate. >> i don't look in the mirror anymore. i don't put my contacts in until after. anyway, thanks, rick. thank you. i suggest the same for you. >> look in the mirror. >> when we come back, investing ideas from the ceo of david winter advisories joining us on part of what's working now series. dow futures up by about 32 points. "squawk" will be right back.

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welcome back to "squawk." talking about our what's working series. joining us now wintergreen advisories ceo, david winter. >> good morning. >> good morning. most of these picks from what i gather are virtually outside the u.s. >> we think the big opportunity is outside north america and the eu for all the reasons you've been talking about. we're trying to get big ideas we can make a lot of money with not a lot of risk for wintergreen investors. >> first, nestles.

>> they are a great company. makes chocolate, infant milk formula. earns money in currency and bought back stock, a dividend, great company, we love it. >> franklin resources, isn't that a domestic company? >> franklin is based in california. global money manager, have an excellence global sheet, bought back lots of stock. a big piece of their business is overseas. many of the companies they own has big overseas legs. >> another is mastercard. >> we love mastercard because the world is going cashless. you have big buy back. lots of pre-cash flow and growing at 20%. even if you go to the grocery store today, people use plastic cards. it's a great business. >> this one -- i don't know what kind of watch everyone is wearing. you like swatch watch. why?

>> swatch is the largest watch company in the world. women and men love watches. sales are growing globally. swatch has low end, medium and high end watches. a great business and the family that runs it, is just great. >> i always thought with mobile phones and so many devices people carry around people would stop wearing watches. i don't have a watch . >> you have one? >> i have a crummy watch. >> that means there's an opportunity to sell you a good one. >> i don't want one. >> watches are really jewelry. that has the thing. we love the jewelry business and watch business. >> another one on your list -- i don't think it's that controversial, everyone seems to love this company these days, google, except the controversy going to north korea. >> lots of cash and dominant media company and today internet

company. >> you don't think the stock's too high already? >> if you back out the cash, it really still trades at a very reasonable valuation. everybody loves google. it appeals to people of every age group and every nationality. we think it's a very interesting long term. the only technology company we ow own. >> richmont. >> they own cartier. women love it. the company grows, as china and asia gets richer, everybody loves bling. >> you're buying into bling. >> yeah. >> loser on your list, anglo america. why? >> anglo. unfortunately, what's happening in many of the third world countries jack they'll sell you this minerals and either tax it or want it back. we roelz the economics aren't as

good. we've moved on. >> how long were you in that stock for? >> a couple years. >> one or two others for us? >> in terms of investing. berkshire you're all familiar with, a very interesting special situation due to buybacks, very little downside, a domestic company, and we think you have reasonable upside and very littledown side. one we think is very compelling. in general, blue chip-wise, in switzerland, we love schindler, elevators and escalators, maintenance contractor. a great business as the world gets more vert cancel. buy that stock. >> is that the boca beach club behind you or a screen pretending to be the boca beach club? >> a screen pretending to be the boca beach club. >> wanted to clarify that.

>> otherwise it would be in boynton beach. >> it says boynton beach. >> that this is boca beach club behind. >> that's hard -- >> as i saw that, i thought, could you be far enough away that the camera is looking. >> the one message i would leave you all with, i think there's a lot of reasons to be optimistic and a lot of money to be made and why we're enthusiastic at wint wintergreen. coming up, byron wien's 13 surprise. are you going to drink your orange juice? >> i have been drinking it. >> you're sippi inping it. and if you ever wanted to ask me a question about is it a dye or weave, is it a system? anyweave, toupee? you get a chance tomorrow

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canceling a boeing 787 dreamliner flight scheduled to fly from western japan to tokyo

today. the airline talking about brake problems. this is the third setback for the aircraft this week. yesterday a fuel leak forced a 787 operated by japan airlines to cancel takeoff at logan, boston. and there was another electrical fire after a japan airlines flight out of tokyo. let's get down to the new york stock exchange. jim cramer joins us. i don't know how much you've been able to see, jim. but byron thinks the s&p, that we could have a down year in earnings. and he gave some different reasons. that definitely would be a surprise. it's not necessarily a prediction. he is just getting people thinking. what do you think? >> look, i love byron. i have been since i first had dinner at his place 25 years ago. it worries me, because i know how right you've been, the surprises do come out. i point out perhaps the united states is not the best place to invest this year. and your china, what you're saying about china is

interesting. the fact, frankly, that there is no tipping point yet worries me the most. until we get the wakeup call, i don't like the s&p 500 in this country versus other countries, byron, i just don't. >> yeah, i think the big problem is, earnings are decelerating, and most people don't recognize that. >> decelerating is different than dropping, huh? >> jim, where are you on the end of the year? >> i think we can come back. look, i actually believe if we get our finances in order in the shop, my biggest thing is we may do something. the republicans wake up and they get the latino vote. they recognize there's a big country out there, it's not just white. maybe we get tough negotiations on spending. and then i think you have a second half that bounces back, probably the fourth quarter. when i'm a stock picker, byron knows that, he gives you a 1% gain in gdp in housing. that's a lot of room in the s&p to find stocks. and energy call, another way to be able to find stocks.

that means it beats stocks lower. byron, you know how much that means for aluminum, steel, and great things for plastics. >> yeah. byron, you think oil -- you didn't give an actual -- >> yes, he did, 70. >> that's bad for the s&p energy sector, jim. it would be good for everybody else. >> 10% of the s&p versus 80% of the s&p. byron, i'm not going to go against you at the beginning of the year, because you've been too right. but because i'm a stock picker, i can translate that into a solid buy of, okay, sherwin williams, you know how i am. i like to pick stocks. that wins in your environment. >> absolutely. anything housing related wins. >> yeah. >> cover the world. jim, thanks. >> our guest host this morning is byron. his final surprise for 2013. you don't want to miss it when we return. but don't just listen to me. listen to these happy progressive customers. i plugged in snapshot, and 30 days later,

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i am probably going to the gas station about once a month. last time i was at a gas station was about...i would say... two months ago. i very rarely put gas in my chevy volt. i go to the gas station such a small amount that i forget how to put gas in my car. [ male announcer ] and it's not just these owners giving the volt high praise. volt received the j.d. power and associates appeal award two years in a row. ♪ [ male announcer ] how do you make 70,000 trades a second... ♪

reach one customer at a time? ♪ or help doctors turn billions of bytes of shared information... ♪ into a fifth anniversary of remission? ♪ whatever your business challenge, dell has the technology and services to help you solve it. welcome back to squawk pox. time for byron's final surprise for 2013. this one, give me a drum roll, it involves a nuclear iran? what does that mean? tell me. at